Psagot's Covenant for Responsible Investments


Psagot, as Israel's largest investment house, is committed to act in the best long-term interests of our customers. We at Psagot recognise that environmental, social, and corporate governance ("ESG") issues can contribute to maximizing return over time, mitigate investment risk and improve norms of the Israeli capital markets. In addition, we recognize that applying these principles serves broader goals that are aligned with the interests of the community as a whole.

What are Responsible Investments?

Investments based on an investment strategy that combines risks and opportunities in companies regarding environmental, social, and corporate governance, applied to improve performance and achieve better returns over time.
ESG refers to considerations that measure the sustainability and impact of a particular investment on society and the environment. ESG issues can be varied and may cause operational and other risks, and significant business costs. Examples of ESG issues include, but are not limited to: environmental protection, corporate governance, human rights, safety, and integrity.
This approach mirrors the approach of leading global financial institutions, which strive to deliver improved financial results alongside a positive effect on society and the environment, thus enabling investors to maximize their investments.
Psagot has formulated four basic principles, according to which Psagot wishes to act on behalf of its customers. These principles are consistent with our fiduciary duty. The publication of these principles in a Responsible Investments Covenant should set out transparent and clear rules of conduct to the public.

The Four Principles:

The First Principle - To Incorporate Environmental, Social and Corporate Governance (ESG) Issues in Investment Analysis and Investment Decision-Making Processes:
We believe that ESG considerations should be taken into account in decision-making processes, to assess risk inherent in an investment, along with the positive impact of investment on the environment and society. Most times, these risks are not taken into account before an investment decision. These considerations will be taken into account, in addition to traditional internal financial analyses that examine the economic viability of an investment.
To make investment decisions that also take ESG considerations into account, Psagot will incorporate the analysis of these issues, As far as this information is available.

Second Principle - To be Active Owner and Incorporate ESG Issues in our Institutional Engagement Policy and Work Practices"
We believe that active involvement in appointing directors in public companies is one of the most fundamental rights for a shareholder. We are working under this framework to help strengthen directors' objectivity and their independence, by locating suitable and quality candidates that will be proposed by the minority shareholders, improving the companies in the long term.
As noted in its "Psagot Covenant for Institutional Involvement," Psagot considers voting at general meetings as a central tool for influencing the conduct of companies in which Psagot's customers' money is invested, particularly in matters such as interested party transactions, compensation of officers, the appointment of directors and external directors. This policy includes, inter alia, an internal and independent analysis by Psagot before voting at general meetings.
Voting at general meetings is a vital tool held by institutional bodies, enabling them to take a position as shareholders on critical issues relating to corporate governance and corporate responsibility. From now on, this analysis will include other issues that are taken into account, to extend this to all issues covered in the definition of responsible investments.
Such as:
• Reference to the composition of the Board of Directors in terms of diversity, with attention to the gender mix of the Board of Directors along with expertise and experience.
• Upon renewal of their tenure as directors, the manner of their functioning will be examined, and for external directors, their relationship with the controlling shareholder will be examined based on available information.
• Holding an ongoing dialogue with public companies and raising relevant issues on the agenda.
• Supporting initiatives by other shareholders on ESG issues.

The Third Principle - To Require Proper Disclosure of ESG Issues From the Entities we Invest In;
To consider potential financial risks or opportunities related to ESG issues, when making investment decisions, the following steps will be taken:
• We will send a "responsible investment questionnaire" before certain investments.
• We will ask that ESG issues be included in the framework of the annual financial statements or within the context of any other presentation to the public by the company.
• Supporting initiatives for draft resolutions by other shareholders that promote disclosure of ESG issues.

The Fourth Principle - To Promote Regulatory and Structural Changes in the Capital Marketa in Close Cooperation with the Regulator.
By applying this principle, Psagot intends to promote the area of responsible investments through cooperation with the legislator and the various regulators to support initiatives on the issue.

The Covenant will be adopted by each of the relevant companies in the Psagot Group, taking into consideration the customers' interest in the relevant company only.
It should be noted that the Covenant is a foundation and is structured as an "open source" for the sake of frequent updating.  We consider the Covenant a normative framework for the activities of other institutions in Israel, who are invited to take part in its development and adoption.

​Over time, Psagot has led institutional involvement approach and included this concept in the "Psagot Covenant for Institutional Involvement. Along with considerations of financial performance, this approach is also consistent with the interests of the community as a whole and promotes social values. The main issues highlighted in this approach are proper corporate governance; paying attention to the rights of minority shareholders; limitation of executive pay; appointment of external directors, etc. The Psagot Covenant for Institutional Involvement addresses additional considerations that fall under the definition of responsible investments.

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